Category: business advice

Don’t be at the wrong end of the long tail

The state of the apps market shows how the long tail theory doesn’t work for businesses in digital markets

One of the most important characteristics of the technology industry is  you have to be first or second in your market to guarantee profitability.

As more of the world become digitized this is becoming true in other sectors, as Tomi Ahonen’s survey of the app industry shows. This also demolishes the long tail theory of online economics.

The long tail idea was put out by writer Chris Anderson during the first dot com boom.

Anderson’s view was the long tail of older material would be a useful income source for creatives and businesses. For many, small payments on a ‘long tail’ of older work would add up to reasonable revenues.

I’ve always skeptical of that view as the internet tends reward the ‘one percenters’ — a tiny number with the most traffic or revenue make the money while the bulk of players fight over the few crumbs that drop from the table.

A sheer disaster industry

A good example of how digital markets favour a tiny group of leaders  is in Tomi Ahonen’s survey of the 2014 mobile apps market that shows the vast majority of developers struggle for pennies.

Ahonen pulls no punches, describing the apps industry as a “sheer disaster industry with only one sector making money” and goes on to describe just how dire the predicament is for most developers.

The first point is where the money is being made; the first answer is by Google and Apple who skim five billion of the industry’s $21 billion in revenues. Just that stat alone shows where the real money is in the sector.

Of the remaining $15 billion the top 1.3% of the industry — around 27,000 developers — take $11 billion, or 73% of the revenue and leave four billion to be shared among the other 98%.

Slaves and huddled masses

At the other end of the scale those who Ahonen calls the ‘slaves’ and the ‘huddled masses’ there’s only 400 million dollars to be shared around two million developers. Implying 87% of the industry barely make a few hundred dollars a year.

On Ahonene’s figures two out of five developer make nothing.

HUDDLED MASSES IN APPS ECONOMY 2013
Revenues left . . . . . . . . . .  0 million dollars
Bottom 39% developers . . 819,000 developers
Bottom 39% earn . . . . . . .  0 million dollars
Bottom 39% earn . . . . . . .  0% of all revenues
Bottom 39% earn . . . . . . .  0% of developer revenues
Average per dev . . . . . . . .  0 dollars
In above numbers:
Beggars failed to earn . . . . 400,000
Hobbyists don’t care . . . . . 250,000
Branded utility app devs . . 170,000
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014

The Apps industry is a stark indicator of just how brutal the economics of digital distribution are. The long tail is real, it’s just that it describes a massive imbalance in income within markets.

For all of us trying to make a dollar in the digital world, we need to find the niche where we fit into the profitable part of the curve.

Being on the wrong end of the long tail is a recipe for poverty.

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Frenemies in the age of tectonic shifts

In an age where business is changing dramatically it’s worth keeping your rivals close.

“Apple lives in an ecosystem,” Steve Jobs told the 1997 MacWorld conference. “It helps other partners and it needs the help of other partners.”

A few minutes later Jobs unveiled Apple’s deal with Microsoft, much to the disgust of many of the company’s true believers in the audience – something not helped by Bill Gates appearing on video midway through the presentation.

“We have to let go of the idea that for Apple to win, Microsoft has to lose;” said Jobs after the booing died down.

I was reminded of Jobs’ and Gates’ deal when talking to Pat Gelsinger, the CEO of virtualisation software company VM Ware at their annual VM World conference in San Francisco this week.

Gelsinger was discussing the myriad deals VM Ware has made with companies that are their superficially their rivals as markets radically change. The company has even gone as far to embrace the open source Open Stack that was originally set up as competition to VM Ware’s proprietary technology.

“The idea of frenemies – or co-competition – isn’t new to the IT industry.” Said Gelsinger, “as we are in this period that we’ve called the tectonic shifts that are underway.”

“All of us need to be somewhat careful about who’s our friends and who’s our enemies as we go through that period and be as nice as we can to everybody because who’s our friends and who’s our enemies in six months or twelve months could change a whole lot.”

That lesson has been harsh in the IT industry as various unstoppable businesses have found the market has shifted rapidly against them. A process that’s accelerating as cloud computing changes the software industry.

“I always quip that ten years ago or fifteen years ago Sun would have been buying Oracle. Those shifts can occur quite rapidly,” Gelsinger says.

VM Ware itself is on the brunt of one of those shifts as its core business of creating virtual services in company’s data centres is being disrupted by cloud computing companies like Amazon, Google and – ironically – Microsoft.

Adapting to that changing market is the key task for Gelsinger and VM Ware’s management team, “our philosophy has been about doing the right thing that technology enables us to do.” Gesliner states, “do the right things for our customers and enable the ecosystem to join us on the journey.”

For companies like VM Ware and Microsoft no-one predicted that one of their biggest threats would come from an online book retailer, yet Amazon Web Services has upended the entire software industry.

The challenges for VM Ware today or Apple nearly two decades ago are being repeated in many other industries as competitors appear from unexpected directions, which is why it’s important not to ignore and sometimes co-operate with your competitors.

We shouldn’t also ignore the other main reason why companies like Apple, Microsoft and, possibly, VM Ware have survived massive market shifts over time – a deep and loyal customer base.

Understanding and responding to your customers’ needs is possibly the greatest management skill needed in every business today. Are you listening to what your market is telling you?

Paul travelled to VM World in San Francisco as a guest of VM Ware

Picture of Steve Jobs and Bill Gates via Joi Ito on Flickr

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Blurring the boundaries between home and office

The workplace is changing as mobile internet becomes an expected part of society.

“My ambition is to only spend four or five hours in the office,” said Vodafone Australia CEO Iñaki Berroeta when asked at a lunch in Sydney today about how he would like to structure his working day.

For many Australians, this is becoming the reality of work as increasingly their job is following them home and into their social lives according to Microsoft’s Life On Demand white paper released this week.

The blurring of the lines between home and work is no surprise to small business owners, senior executives or those establishing a startup, however according to Microsoft this is becoming normal for the majority of workers.

In their paper, Microsoft found 30% of Australian workers are checking work emails on devices at home before they leave for work and 23% are doing work activities while they are socialising with their friends.

Overall, more than a quarter of Australians work from anywhere which has more than doubled in the last five years.

This is largely due to the rise of tablet computers and accessible wireless broadband. A direct consequence of this is nearly half of commuters work or study while on public transport.

Being able to work on the train, bus or tram is changing the usage of public transport with many commuters preferring to use the usually slower option (at least in Australia) over driving as it’s seen as more productive time. This is a cultural change that governments have been slow to understand.

Equally slow have been many businesses in understanding they have to deploy the tools that allow workers to be efficient while out of the office, this is the whole point of cloud services.

The workplace is changing as mobile internet becomes an expected part of society. How is your businesses catering to both your staff and customers’ needs in the age of the smartphone and tablet computer?

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It’s time to educate our politicians

Last week showed the technological ignorance of Australian politicians. It’s time voters and business demanded better.

In mid 2003 I put an employment ad online for two computer technicians. I was expecting a healthy response as it was the depths of the computer industry’s depression following the tech wreck two years earlier.

A healthy response is what I got. Two thousand job applications came in; it took me a week to wade through them.

I was reminded of that story with the Federal government’s recent thought bubble requiring those on unemployment benefits to apply for forty jobs a months.

Like most of the business community I was appalled at the thought of being buried under hundreds of pointless job applications that served nothing but to fulfil a Liberal Party staffer’s ideological fantasies.

Within a week an Adelaide grandfather had come up with the idea of a jobseeker app that would automate the task which shows just how far out of touch both sides of politics have become with the modern world, particularly the digital economy.

The Australian political classes’ lack of understanding of technology has been on painful display over the last week with the Federal government’s fumbling over proposed data retention laws; one gets the impression George Brandis needs other people to use the toaster for him, let alone be trusted to use a computer without assistance.

This incomprehension of what’s driving the modern economy among our political leaders is no longer a joke – when the Prime Minister himself proudly states ‘I am not a geek’, it’s clear this nation is being led away from having any serious role in the 21st Century.

In fairness, this is not the fault of any single party or individual; it’s the result of Australians – particularly Australian businesses – voting like sheep for the blue team or the red team at every election.

As a consequence, Australian politics is now dominated by comfortable, arrogant and somewhat dim careerists who have little in skills beyond being able to float to the top of the shallow, fetid sewers that are the party political machines.

This is our fault and it is where Treasurer Joe Hockey is right in bemoaning how business won’t stand up and strongly lead the nation’s reform agenda.

Unfortunately for Joe, a true reform agenda is about making the nation more competitive in an era where the world’s economy is radically changing. The old ‘ship out resources and watch your property go up in price’ model that has sustained the Aussie economy is not a recipe for long term success.

If Australia is going to compete in the Twenty-First Century then we are going to have to invest in modern training, education and capital equipment while putting in the tax and social security systems that reward genuine entrepreneurs and job creators over property speculators and corporate ticket clippers.

Right now Joe, and his friends in both the Liberal and Labor parties, are doing exactly the opposite.

Joe’s right. We need to voice our concerns loudly. We also need to demand our politicians at least take the time to understand the basics of the technologies that are radically changing today’s world.

Next time you see a politician, of either colour, try to get five minutes of their time to explain how technology is changing your business. Hopefully it might make them pause before the next thought bubble.

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Standing up to the giants – why the big software companies don’t always win

The survival of QNX illustrates how big companies don’t always prevail on the internet

In the latest Networked Globe post I have an interview with QNX founder Dan Dodge on how BlackBerry wants to be at the heart of the Internet of Things.

One of the things Dodge discusses is how twenty years ago Microsoft told QNX they would be driven out of business by the software giant’s Windows CE operating system.

As it turned out Microsoft failed dismally.

QNX’s survival in face of a big competitor is similar to Google’s failed attempts to enter various industries. Everyone assumes Google will succeed against the smaller players because they are rich and smart.

Often however the rich player doesn’t win because the smaller incumbent is savvy, focused and knows their market well.

Sometimes bigger is not always better in the software industry.

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Everyone is a critic on the internet

Business owners need to stop being so defensive about what their customers say on social media

“Everyone’s a critic” is the old saying. Today this is truer than ever as anyone can post a review online.

One of the notable things about business in the internet age is how sensitive people are to criticism.

A good example of this is a story going around the web this week of a Dallas chef, John Tesar, who had a magnificent breakdown over a review of his restaurant in the local newspaper.

This set off a chain of claims and counterclaims including some truly bizarre pieces on various blogs about ‘chefs winning the war against critics.’

Probably the strangest thing with this whole debacle is the review by Leslie Brenner in the Dallas Morning News is actually quite constructive and certainly no AA Gill style demolition of the establishment.

This silly little spat illustrates how business people, not just temperamental chefs, have glass jaws. Another story going around the web this week is of Union Street Guest House in Hudson, New York, that fines guests for bad reviews

Tesar’s response is pretty typical of many business owners – attack the critic instead of addressing the problems. Given Tesar threw the Twenty Rules of Social Media – which apply to businesses as much as social media – out the window, he was lucky not to find his reaction backfiring horribly on him.

What business owners have to understand is that you will get criticism, unfortunately most of it you will never know about as unhappy customers tell their friends and relatives.

If you get the opportunity to hear that criticism, then you have the opportunity to fix the problem.

This is something business owners need to understand about review sites and social media; it’s an opportunity to get some honest feedback about how things are going.

So start listening to what your customers are saying online and stop being so defensive.

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Rent doesn’t matter to startups

Rent doesn’t seem to matter for startups — for the moment

Following yesterday’s post about the factors behind cities like New York, London and San Francisco becoming startup hubs, a friend asked “let me gues — cheap rents?”

In truth it’s the opposite; none of the cities cited as startup centres are cheap places to live or work and London is usually towards the top of the most expensive places on the planet.

That rents aren’t a huge factor is possibly because the typical tech startup is a lean operation with a small team crammed into a crowded location.

One suspects though there are limits to how much a business conserving its cash will pay — you don’t see many startups based in A-grade locations alongside big law firms and banks — and this may be the weaknesses of these big cities.

Certainly in London’s Silicon Alley the complaint is the days of cheap rent are long gone and newer startups have to base themselves in other locations across the city.

Overall, rents are important but they aren’t the critical factor in developing a tech sector hub. Whether that remains the case depends upon how the industry develops.

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